The Budget Picture, Why All The Fuss From Me
Because of the economy and particularly the housing market, city revenues are forecast to be flat for fiscal year 2010. The only real option for raising more revenue is to increase property taxes and, again the economic situation argues against that. Because this is an election year, there is little will to even broach the “tax” word.
Thus the budget presented by the Mayor was controlled by the fact that our revenue was forecast to be $81 million for fiscal year 2010, the same level as for fiscal 2009 (The fiscal year runs from July 1, 2009 through June 30, 2010.). Because the budget must be balanced, spending could only be $81 million as well, and that was what was presented to the Council for its budget deliberations.
However, a review of expenses known to exist but not included in the budget showed that spending would be much more than $81 million, by as much as $3 million and probably more like $5 million. The known liabilities included such costs as the Market House settlement costs, operating expenses for the new recreation center after it opens at the end of the year, and the budget requests of each City Department themselves. I documented these concerns with the City’s Finance Committee and the budget for 2010 is now $86.5 million.
My other concern with the Mayor’s proposed 2010 budget is that it would have had very adverse consequences for our general reserve fund, which would be pulled below the required 10% level (that's 10% of the operating budget of about $58 million or $5.8 million). Part of our good bond rating is related to the level of our reserve fund and its indication of the good health of the city finances. (In June of last year our reserve fund was at 18% of the operating budget.) Our bond rating affects the cost of any bonds we issue to fund capital projects -- the better the rating the less interest we have to pay.
Actual spending and reserve fund restoration to a 15% level in FY 2010 will put our spending at around $86.5 million. To bring things into balance, we had to move $4.2 million of "pay-go" dollars out of the capital budget back to the general fund and also increase parking garage fees to generate an estimated additional $900,000. The parking fees are part of an enterprise fund and can't be used for general revenue purposes, but can be used to offset the annual losses for the transportation fund (the City buses). The transportation fund is projected to lose $2.2 million dollars in 2010. In the past and again in the 2010 budget, operating revenues have been used to offset the transportation losses. Most of the increase in parking fees will be used to reduce the transportation shortfall, and therefore, in effect, increase the operating budget reserve fund.
I know this is complicated and, of course, several other things were going on in the budget process this year, but the above is the big picture of how a "balanced budget" of $81 million became a more balanced budget of $86.5 million. I still think that we could easily be about a million short with the new budget, but we do have some stimulus money coming in and that may help things a bit.
By the way, our "paygo" maneuver will cost us around $300,000 additional each year for the next 20 years due to the increase in debt service costs. This is a short-term gain with a rather large long-term cost.
In my view, the real problem will be the budget years of 2011 and 2012 when revenues will still be about $81 million but without significant changes, our expenditures are likely to be around $90 and $94 million. This would lead to deficits in the $9 and $13 million range. To head off those deficits we will either raise revenues or cut expenses or some of both. The only significant source for new revenue is by raising property taxes, and deficits at the level I predict would mean a rate increase of 18 cents in 2011 and another 8 cents increase in 2012. Currently the rate is 53 cents per hundred of the taxable assessed value. That’s a 50% increase in property taxes over just a two-year period.
Without a tax increase we will need to make drastic cuts in spending by either huge layoffs or the elimination of whole departments, such as say the Fire Department and Parks and Recreation by asking the County to assume these services. Cutting those departments, or any other set of departments, from the city budget would reduce city expenses but would mean higher county taxes to cover increased county costs. It would also mean a major reduction in city control over those services. So taxpayers will not get any relief, just the city budget.
It is likely that we will need to enact a mix of both tax increases and expenditure cuts for the next two budget years.
In my view, the budget crisis is much more serious than the mayor's pay or any other issues before the Council.
Ross Arnett
Ward 8 Aldermen
